C.2. Other Non-Compliance Issues

• (1) Violations of the Available Unit Rule can also result in noncompliance with other IRC §42 requirements. Specifically, consideration should be given to the following:

  • Minimum Set-Aside Requirement – as a violation of the Available Unit Rule may result in multiple over-income units losing the low-income status, the minimum set- aside requirement may not be met; i.e., the number of qualifying units falls below the minimum requirement. See Chapter 10.

  • Annual Income Recertifications after July 30, 2008 - if the building is part of a 100% qualified low-income project, where the owner is not completing annual tenant income certifications under IRC §142(d)(3)(A),[5 ] the IRS accepts, for purposes of the Available Unit Rule only, that households documented as initially income-qualified households are income-qualified. Failure to rent the next available unit as a rent- restricted unit reduces the low-income building’s qualified basis to zero unless the owner can document which units are not over-income units. If the owner intends to convert from a 100% low-income project to a mixed-use project, the owner must first determine which units are over-income units and apply the Available Unit Rule as needed. Reducing the number of low-income units in a building is a credit recapture event under IRC §42(j).

  • Annual Income Recertification Waivers before July 31, 2008 - if the building was a100% low-income building and the owner has a waiver of the annual income recertification under IRC §42(g)(8)(B), qualified lowincome units in the building continued to be treated as qualified lowincome units even if the owner was not completing annual tenant income certification or otherwise documenting that the units are not over-income. However, if the building owner rented an available unit in the building to a nonqualified household, the owner was required to determine if any of the units in the building were over-income, despite having a recertification waiver in effect. Further, under Rev. Proc. 94-64 or Rev. Proc. 2004-38, renting a unit to a nonqualified household in a 100% LIHC building resulted in the revocation of the waiver. The Annual Income Recertification Waiver was subsumed by the new exception under IRC §142(d)(3)(A) for 100% qualified low-income projects and are, therefore, no longer enforced.

  • Annual Certification – the owner may have incorrectly reported compliance with the Available Unit Rule as part of the annual certification as described in Treas. Reg. §1.42-5(c). See Chapter

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